Two Estonian nationals have admitted to orchestrating a massive $577 million cryptocurrency Ponzi scheme through HashFlare, deceiving hundreds of thousands globally. They now face up to 20 years in prison and must forfeit $400 million in assets.

Details of the Fraudulent Scheme

The U.S. Department of Justice (DoJ) has confirmed the guilty pleas of Sergei Potapenko and Ivan Turõgin, both 40, in a significant cryptocurrency fraud case. These individuals were apprehended in November 2022 and extradited to the U.S. by May 2024.

Between 2015 and 2019, Potapenko and Turõgin operated a fraudulent cryptocurrency mining service, HashFlare, misleading investors about its capabilities. This scheme generated over $577 million by falsely promising investors returns from cryptocurrency mining.

How the Scheme Operated

The duo ran a complex Ponzi scheme, offering contracts to investors with promises of sharing profits from cryptocurrency mining. However, HashFlare lacked the necessary computing power to fulfill these promises, leading to fabricated data on their platform to mislead investors.

  • Misrepresented mining capacity and profitability.
  • Fabricated data to show false profits.
  • Funds were used for luxury purchases and investments.

While the fraudulent scheme amassed $577 million, the defendants have agreed to forfeit over $400 million in assets as part of their plea agreement. These funds will be used to compensate victims, with details to be announced by the DoJ.

Potapenko and Turõgin pleaded guilty to conspiracy to commit wire fraud, carrying a maximum sentence of 20 years. Their sentencing is scheduled for May 8, with various legal factors influencing the final outcome.

International Cooperation and Investigation

The investigation was led by the FBI Seattle Field Office, with support from Estonia’s Cybercrime Bureau, the Estonian Prosecutor General, and the Ministry of Justice and Digital Affairs. The DoJ acknowledged their crucial role in the investigation and extradition process.

Learn more about cryptocurrency fraud and how to protect yourself in our detailed Research section.

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